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Signed Into Law
Signed May 28, 2025Effective 2025-05-28
HB21

Regular Session

Relating to housing finance corporations; authorizing a fee.

Government Affairs & Regulatory Compliance Analysis

HB21: Government Affairs Overview

HB21 fundamentally transforms Housing Finance Corporation (HFC) tax exemptions from a static benefit into a conditional, performance-based contract. If the rent savings you provide to tenants do not equal at least 50% of the value of your tax exemption, you must pay the difference to the taxing units. This legislation immediately impacts developers, operators, and HFCs by imposing strict geographic boundaries, mandatory "pay-for-performance" audits, and non-negotiable tenant protections.

Rep. Gary Gates·House Bill·Regular Session

Critical
High Cost
Effective:2025-05-28
Business Impact

Who HB21 Affects

This legislation has regulatory implications for the following Texas businesses and organizations:

Regulatory Priority: critical

Significant regulatory changes (effective 2025-05-28). Review with your legal and compliance teams to understand implications.

🏢

Real Estate

Affected business types:

  • Property developers
  • Commercial landlords
  • Property managers
  • Real estate investors
View all real estate legislation

Key Operational Considerations

  • 1Property Management Agreements: Amend to include indemnification clauses if the management company’s failure to market to Section 8 voucher holders causes a loss of tax exemption.
  • 2Lease Agreements: Standard TAA or proprietary leases are insufficient. You must add addendums specifying:

Estimated Cost Impact

highSignificant operational investment may be required.

Enforcing Agencies

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HB21
Relating to housing finance corporations; authorizing a fee.
Critical Urgency
Passed with Opposition
House Vote115 - 13
YEA
90% in favor128 voting
Senate Vote30 - 1
YEA
97% in favor31 voting
14
Total Opposition Votes
Cost Impact
High
Effective
2025-05-28
Enforcing Agencies
County Appraisal DistrictsTexas Comptroller of Public Acco...TDHCA
Primary Author: Rep. Gary Gates
89th Texas Legislature
jdkey.com
01

Compliance Analysis

Key implementation requirements and action items for compliance with this legislation

Implementation Timeline

  • Effective Date: May 28, 2025 (Immediate for new acquisitions/developments).
  • Compliance Deadline:
  • January 1, 2026: Deadline for existing assets to comply with tenant protections (Section 8 acceptance, non-renewal limits) and lease requirements.
  • June 1, 2026: First Annual Compliance Audit due to TDHCA for existing assets.
  • January 1, 2027: Deadline for existing assets located outside the HFC’s sponsoring jurisdiction to obtain local approval or lose tax exemption.
  • Agency Rulemaking: TDHCA must adopt rules regarding audit procedures and appeals by January 1, 2026. Expect a regulatory "gray zone" regarding specific audit formats until Q4 2025.

Immediate Action Plan

  • 1. Portfolio Audit (Financial): Immediately model all HFC assets against the "50% Savings Test." If a property fails this metric, you face immediate financial liability (Shortfall Payment).
  • 2. Portfolio Audit (Geographic): Identify all assets located outside the HFC's sponsoring jurisdiction. Initiate contact with local governing bodies immediately to secure the required resolution before the Jan 1, 2027 cutoff.
  • 3. Update Leases: Draft and deploy lease addendums regarding non-renewal and tenant organizing to be ready for the Jan 1, 2026 mandatory implementation.
  • 4. Website Updates: Post Section 8 voucher acceptance policies on all property websites immediately to demonstrate good faith compliance.
  • 5. Budget Adjustment: Add the Audit Submission Fee and the cost of an independent auditor to the 2026 operating budget.

Operational Changes Required

Contracts

  • Partnership/Operating Agreements: Must be amended to define liability for the "Shortfall Payment." If the project fails the 50% savings test, the agreement must specify whether the Developer or the HFC writes the check to the taxing units.
  • Property Management Agreements: Amend to include indemnification clauses if the management company’s failure to market to Section 8 voucher holders causes a loss of tax exemption.
  • Lease Agreements: Standard TAA or proprietary leases are insufficient. You must add addendums specifying:
  • Prohibition on retaliation for tenant organizing.
  • Specific "good cause" grounds required for non-renewal (30-day notice required).

Hiring/Training

  • Leasing Staff: Must be trained on 24 C.F.R. Section 5.609 (HUD income definitions) immediately. Staff must be retrained to affirmatively market to Section 8 voucher holders; refusal to rent based on voucher status is now a statutory violation.
  • External Auditor: You must retain an independent auditor to prepare the Annual Compliance Report. This cannot be done in-house.

Reporting & Record-Keeping

  • Rent vs. Tax Ledger: Operations must maintain a live calculation of "Rent Reduction" (Market Rent minus Restricted Rent) vs. "Estimated Tax Liability."
  • Website Compliance:
  • HFCs: Must publish Underwriting Assessments for new deals.
  • Properties: Must publish policies regarding Section 8 Housing Choice Voucher participation.
  • Annual Audit: File the Compliance Audit Report with TDHCA and the local Chief Appraiser by June 1 annually.

Fees & Costs

  • Shortfall Payment (Clawback): If Rent Savings < 50% of Tax Exemption Value, the difference is due as a payment to taxing units.
  • Audit Submission Fee: Budget approximately $20 per restricted unit annually (pending final TDHCA rulemaking).
  • Legal/Admin: Increased costs for annual independent audits and legal review of lease addendums.

Strategic Ambiguities & Considerations

  • "Market Rent" Calculation: The statute defines Market Rent as the average rent for non-restricted units. For 100% affordable developments, the method for establishing "Market Rent" (to prove rent savings) is undefined. TDHCA rulemaking will be critical here; an unfavorable definition could trigger Shortfall Payments.
  • "Good Cause" for Extensions: TDHCA may extend audit deadlines for "good cause," but the parameters for this relief are currently undefined.
  • Audit Fee Finalization: While the Fiscal Note estimates $20/unit, the agency has the authority to set this fee to cover "administrative expenses," which could fluctuate.

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Information presented is for general knowledge only and is provided without warranty, express or implied. Consult qualified government affairs professionals and legal counsel before making compliance decisions.

02

Legislative Timeline

This bill's path through the Texas Legislature

Filed
Jan 13, 2025
Passed House
May 10, 2025
Passed Senate
May 14, 2025
Signed
May 28, 2025
Effective
May 28, 2025
TopicsCity GovernmentCity Government--land Use & ZoningCounty GovernmentCounty Government--land Use & ZoningHousingHousing--financeHousing--generalProperty InterestsProperty Interests--landlord & TenantTaxationTaxation--property-exemptionsAudits & AuditorsHousing & Community Affairs, Texas Department of
03

House Authors

Rep. Gary GatesRepublican · Primary Author
Joint Authors
Coauthors (94)

Senate Sponsors

Sen. Paul BettencourtRepublican · Primary Sponsor
Cosponsors (8)

Bill Text(with markup)

Showing first 50k characters.

View bill text in multiple formats on Texas Legislature website

Fiscal NoteView Original

Related Legislation

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More from Rep. Gary Gates

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Related by Topic

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Quick Reference

Frequently Asked Questions

Common questions about HB21

Q

What does Texas HB21 do?

HB21 fundamentally transforms Housing Finance Corporation (HFC) tax exemptions from a static benefit into a conditional, performance-based contract. If the rent savings you provide to tenants do not equal at least 50% of the value of your tax exemption, you must pay the difference to the taxing units. This legislation immediately impacts developers, operators, and HFCs by imposing strict geographic boundaries, mandatory "pay-for-performance" audits, and non-negotiable tenant protections.

Q

Who authored HB21?

HB21 was authored by Texas Representative Gary Gates during the Regular Session.

Q

When was HB21 signed into law?

HB21 was signed into law by Governor Greg Abbott on May 28, 2025.

Q

Which agencies enforce HB21?

HB21 is enforced by County Appraisal Districts (Chief Appraisers), Texas Comptroller of Public Accounts and Texas Department of Housing and Community Affairs (TDHCA).

Q

How significant are the changes in HB21?

The regulatory priority for HB21 is rated as "critical". Businesses and organizations should review the legislation to understand potential impacts.

Q

What is the cost impact of HB21?

The cost impact of HB21 is estimated as "high". This may vary based on industry and implementation requirements.

Q

What topics does HB21 address?

HB21 addresses topics including city government, city government--land use & zoning, county government, county government--land use & zoning and housing.

Q

What are the key dates for HB21?

Key dates for HB21: Effective date is 2025-05-28. Rulemaking: Adopt rules implementing audit requirements, administrative processes, and appeal procedures for findings of noncompliance. (2026-01-01). Consult with legal counsel regarding applicability.

Q

What are the penalties under HB21?

HB21 establishes the following penalties: administrative penalty of Loss of Ad Valorem Tax Exemption for Failure to resolve noncompliance with affordability, tenant protection, or audit requirements within 180 days of notice from TDHCA.; civil/financial penalty of Pro rata share of rent reduction shortfall for If the rent reduction provided to tenants is less than 50% of the estimated tax exemption value, the difference must be paid to taxing units.. Consult with legal counsel for specific applicability to your situation.

Q

Which Texas businesses are affected by HB21?

HB21 primarily affects property owners and real estate professionals. These businesses should review the legislation with their legal and compliance teams to understand potential impacts.

Need Strategic Guidance on This Legislation?

JD Key Consulting is an Austin, Texas-based government affairs firm led by James Dickey, former Chairman of the Republican Party of Texas. We specialize in Texas regulatory compliance and legislative strategy for data centers, energy, banking, and manufacturing.

Legislative data provided by LegiScanLast updated: January 11, 2026